Smart Lending Strategies

Eric Kujala, Enterprise Sales Manager at Capsilon Corporation, which provides comprehensive cloud-based document and data management solutions for the mortgage industry, recently joined the PROGRESS in Lending Association Executive Team. He is a real visionary individual with strong feelings about how the industry can and should improve going forward. Capsilon did a recent study that found that 70 percent of mortgage lenders report that they expect total loan product costs to continue to rise in 2017. So, how do lenders embrace smart automation to stop this trend? Here’s what Eric told us:

Q: How did you get started in the mortgage industry?

ERIC KUJALA: I joined Flagstar Bank as a loan officer in 2002 and became a VP of the Direct Lending branch soon afterwards. We took our branch paperless in 2005 using shared drives, and that was my first experience implementing technology to improve the loan production process. Flagstar then adopted the DocVelocity document and data management platform to speed loan production, and in 2008 I was asked to drive implementations of DocVelocity at our wholesale lender customers. I loved introducing DocVelocity to Flagstar’s wholesale lenders because I’d already experienced first-hand how the technology optimized our workflow at my branch, and knew how thrilled our wholesale lenders would be. With DocVelocity, our average days to close fell from 33 days to 17 days.

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In 2013 I joined Capsilon Corporation, the makers of DocVelocity, as one of its first enterprise sales executives because I really believed in the technology and knew it could solve many of the problems the mortgage industry faces in regards to optimizing loan production while ensuring quality. Since then, I’ve been helping large mortgage companies speed loan production, improve the overall quality of loans, and reduce loan production costs with Capsilon solutions. And, 10 years later, I’m happy to report that Flagstar Bank is still a Capsilon customer! I’m especially proud that our earliest customers still rely on our products today.

Q: You mentioned loan quality a couple times. The industry has been discussing loan quality for years. Is this still an issue?

ERIC KUJALA: You’re right. Most lenders have been focusing on loan quality for years, but few have examined their entire operations to understand how they can improve data integrity. Despite the availability of technology solutions that can greatly increase a lender’s ability to ensure the integrity of the data used to make underwriting or purchase decisions, many lenders have been reluctant to take advantage of this technology. Instead, they rely on humans to “stare and compare” across documents to verifying loan information for accuracy and completeness. This reliance on labor is time-consuming, costly, and error-prone. Lenders who rely on this approach are plagued with inaccurate, inconsistent, or incomplete data that increases compliance risk. Many lenders then throw more labor at the problem.

The approach is changing because lenders now realize that the only way to ensure loan quality and achieve compliance in a cost-effective way is by leveraging technology. I’m now seeing lenders, including most of my customers, moving quality control to the front of the loan process by leveraging technology that extracts loan data from the appropriate documents as they come in, and using this extracted data for automated review and analysis of the loan file as soon as possible.

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Data extraction technology makes it easy to compare data in the system with data on the original documents, and spot anything that requires additional validation early in the process. I believe this trend of using technology to ensure data integrity is positive for the entire mortgage industry because technology can help lenders improve the consistency and quality of loan information throughout the lifecycle of a loan, while reducing the cost of validating loan data.

Q: What is the “hot topic” that’s top-of-mind with lenders today?

ERIC KUJALA: Once lenders had time to adjust to the new way of doing business under TRID, and began to see the negative effect that lengthening close times had on borrower satisfaction, industry conversation shifted to the customer experience. I think this conversation really began to take off with Quicken Loans’ introduction of Rocket Mortgage in late 2015, and it was amplified along with Quicken Loans’ seemingly ubiquitous Rocket Mortgage marketing campaign beginning with their 2016 Super Bowl ad. Rocket Mortgage became the catalyst that forced lenders to evaluate their digital strategies, and the hot topic of conversation shifted from regulation to the innovative technologies required to enable a digital mortgage experience.

Today, automating the borrower application experience and/or the closing process are central to the digital mortgage definition. But what I hear from many of my customers is that this definition is much too narrow. My customers think the definition needs to be expanded to include the automation of steps throughout the entire mortgage manufacturing process, from loan setup to underwriting to post-close audit. Automating these production steps will accelerate origination and contribute to the exceptional customer experience borrowers have come to expect from technology-enabled financial transactions. What good is a great front-end experience if the experience with the rest of the process falls short?

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We conducted a survey at last year’s Mortgage Bankers Association’s Annual Convention and Expo that probed this very topic. The results of the survey, which polled more than 100 executives from leading mortgage companies, indicate that lenders are already expanding the definition of the digital mortgage to include key “back-end” steps in the mortgage manufacturing process.

In that survey, the lenders were asked if automating the consumer experience during the application process or automating key steps in the loan production process is most important to their companies. 45 percent of the respondents stated that automating key steps in their company’s loan production process is most important, 37 percent stated that automating both the consumer experience and their loan production processes are equally important, and only 15 percent stated that automating the consumer experience during the application process is most important.

Those results tell me that the industry realizes that in order to accelerate loan origination while delivering an exceptional customer experience, key steps throughout the entire loan manufacturing process must be automated, not just the application step.

Q: Where do you see mortgage technology headed?

ERIC KUJALA: I really believe the future is in automation, and I’m really excited about some of the newer technologies that are enabling the automation of the mortgage process. I’m hearing a lot about robotic process automation, machine learning, and other advanced technologies that some lenders are already adopting in small ways.

Today, our industry is too reliant on manual labor. It’s one of the reasons that loan production costs are reaching all-time highs, and personnel expenses represent roughly 2/3 of total per-loan production costs. The entire loan process is a series of checks and re-checks that require manual labor. And with the increased regulatory scrutiny of the past several years, many lenders have hired additional personnel to ensure loan integrity, further increasing loan production costs.

This approach, with its reliance on labor, is not sustainable. Lenders need to adopt automation technology to speed loan production and decrease loan production costs. Lenders that leverage this technology will gain a huge competitive advantage.

Q: Where do you think this automation technology will have the most impact?

ERIC KUJALA: Automation technology is the key to dramatically reducing loan production costs, and every step in the process can benefit from intelligent automation. Let’s take a look at a critical step – underwriting. Today, underwriters rely on checklists to evaluate loans. The process is slow and error-prone, and critical calculations often are done manually, where errors can be costly. Using automation technology, checklists are completed in a consistent manner, and the technology flags only those checklist items that don’t “pass” and require manual review.

Using automated data extraction (ADE) technology, underwriters are able to complete checklists in seconds, cutting the time it takes to evaluate loan files by up to 80 percent. ADE technology automatically extracts critical data from loan documents, compares values across documents in a fraction of a second, runs the data through pre-defined rules engine, performs calculations, and provides alerts on any values that fall outside of established parameters or tolerances.

This exception-based model eliminates the costly and time-consuming “stare and compare” approach to verifying data across several documents, and reduces the multiple touches used today to ensure data integrity. This allows the underwriter to focus on loans that require more careful scrutiny, such as loans with non-occupant co-borrowers, loans on investment properties, loans with borrower self-reported income, and other loans with unique characteristics.

Automation also ensures that calculations are done quickly and correctly. Without automation technology, underwriters must manually enter data into a spreadsheet, a loan origination system (LOS), or some other system to perform the numerous financial calculations used in the credit process. And mistakes made while keying data into evaluation tools could result in faulty underwriting decisions that might negatively affect a lender’s ability to sell loans to investors or, even worse, lead to loan buy-backs. With automation, underwriters save time and eliminate errors with technology that performs required calculations in a standardized, repeatable way—something auditors require.

As I mentioned, every step in the mortgage production process can benefit from automation technology. Today, most functions are guided by checklists, and each function checks and rechecks what the previous function has already checked! Most of the items on these checklists can be reviewed and validated with automation technology, dramatically increasing the velocity of loan production.

Q: What can we expect to see from Capsilon?

ERIC KUJALA: I said earlier that the industry really needs to transition from a labor-centric process to a technology-driven one, similar to a digital factory. Capsilon is fully committed to delivering the technology that will power this modern digital mortgage factory. Technology that transforms the speed, user experience, and economics of the mortgage process.

At the heart of the mortgage process are documents and data. And document and data management is in Capsilon’s DNA. Our DocVelocity platform has been the leading cloud-based enterprise mortgage document and data management platform for more than a decade.

We’re building on this heritage and leveraging our patented document recognition and data extraction engines, and the power of the cloud, to turn volumes of mortgage documents into intelligent, searchable digital assets necessary to convert the slow, inefficient mortgage process into a high-velocity digital mortgage factory. We use intelligent process automation to eliminate up to 80 percent of the labor involved at each step of the mortgage production process.

Capsilon is building the digital mortgage platform the industry needs, and I’m super-excited to deliver the technology that will power my customers’ digital mortgage factories, increasing the velocity of loan production while slashing loan production costs.

Industry Predictions

Eric Kujala thinks:

1.) The mortgage production process will transition from the 80% manual (20% automated) process it is today to an 80% automated process within 5 years.

2.) There will be new entrants to the mortgage lending space who will be technology-focused and will forever change the way mortgage transactions are handled.

3.) The broker comeback will continue.

Insider Profile

Eric Kujala started at Flagstar Bank as a home loan advisor in 2002 with responsibility for originating new residential mortgage business for Flagstar Bank’s Direct Lending department. In 2003, he was named team leader in the department, and in 2004 he was appointed assistant vice president, responsible for the entire Direct Lending sales team. He was promoted to vice president in 2006. In 2008, he joined DocVelocity, the flagship product of Paperless Office Solutions, Inc., a wholly owned subsidiary of Flagstar Bancorp, where in 2013 Flagstar Bank sold the subsidiary to its long term partner Capsilon Corporation where he is currently their Enterprise Sales Manager. Eric has been an integral part of the Capsilon team which in 2016 led to Capsilon’s partnership with Francisco Partners, a growth equity firm in San Francisco, CA.

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